Pricing Treatments Cost-Effectively When They Have Multiple Indications: Not Just a Simple Threshold Analysis

Abstract

AbstractBackgroundEconomic evaluations of treatments increasingly employ price-threshold analyses. When a treatment has multiple indications, standard price-threshold analyses can be overly simplistic. We examine how rules governing indication-specific prices and reimbursement decisions impact value-based price analyses.MethodsWe analyze a two-stage game between two players: the therapy’s manufacturer and payer purchasing it for patients. First, the manufacturer selects a price(s) that may be indication-specific. Then, the payer decides whether to provide reimbursement at the offered price(s). We assume known indication-specific demand. The manufacturer seeks to maximize profit, requiring non-negative profit. The payer seeks to maximize total population incremental net monetary benefit and will not pay more than their willingness-to-pay threshold. We consider game variants defined by constraints on the manufacturer’s ability to price and payer’s ability to provide reimbursement differentially by indication.ResultsWhen the manufacturer and payer can both make indication-specific decisions, the problem simplifies to single-indication price-threshold analyses, and the manufacturer captures all the consumer surplus. When the manufacturer is restricted to one price and the payer must make an all-or-nothing reimbursement decision, the selected price is a weighted average of indication-specific threshold prices such that reimbursement of the more valuable indications subsidize reimbursement of the less valuable indications. With a single price and indication-specific coverage decisions, the manufacturer may select a high price and fewer patients receive treatment than in the first-best solution. However, there are also cases when the manufacturer selects a low price resulting in reimbursement for all indications and positive consumer surplus.ConclusionsWhen multiple indications exist for a given treatment, economic evaluations including price-threshold analyses should carefully consider jurisdiction-specific rules regarding pricing and reimbursement decisions.